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Micron Slumps on Weak Forecast, Putting Stock Run on Pause

(Bloomberg) -- Micron Technology Inc. fell as much as 8 percent in early trading Friday after giving a disappointing forecast for third-quarter sales, pausing a stock surge this year fueled by fast revenue growth.

Analysts at Citigroup cut their rating on the stock to neutral, raising the number of non-buy ratings to three. The stock fell to as low as $54.18 in early trading in New York Friday before paring the loss. It was down 2.8 percent at 8:10 a.m. Micron shares have gained more than 40 percent this year and had been trading near a 17-year high before the results were released after the close of regular Thursday.

The Boise, Idaho-based memory-chip maker said sales in the period that ends in May could be as low as $7.2 billion, while analysts were estimating $7.29 billion. Micron beat projections for earnings, saying Thursday it’s expecting profit excluding some costs of $2.83 a share in the current quarter, ahead of analysts’ average estimate of $2.65.

Micron is benefiting from a surge in the use of chips that store data in everything from home appliances to supercomputers. That diversity of demand industrywide has helped head off, so far, the recurrence of the kind of supply glut that’s plagued the market in the past and crashed pricing and company earnings. Investors, who have poured money into the stock in the past year, may have been looking for Micron to provide greater reassurance that the pace of revenue gains would continue after a jump of more than 60 percent in fiscal 2017.

Still, the company is confident that demand will continue to outrun supply this year, Chief Executive Officer Sanjay Mehrotra said in an interview. The use of memory in products outside of its traditional home in personal computers and servers also makes the market more profitable and growth more sustainable.

"The markets today for memory and storage are absolutely different than in the past,” he said.

Several analysts increased their price target on the stock.

Operators of data centers that provide computing services over the internet are continuing to add to their infrastructure, and they need more memory and the faster storage provided by Micron to build out new services that use artificial intelligence, he said. Micron is also the main provider of memory chips used in cars. The push to make vehicles smart enough to drive themselves is creating another new market for memory, Mehrotra said.

Micron competes with Samsung Electronics Co. and SK Hynix Inc. in computer memory and against those Korean companies plus Japan’s Toshiba Corp. in the market for flash memory chips. While Micron is still dwarfed by Samsung, it has carved out profitable niches and obtained higher prices by selling directly to different customers, such as makers of computer-storage drives.

Highlighting the volatile nature of making a living in this part of the semiconductor industry, Micron posted a net loss as recently as 2016. Analysts who cover Micron, 89 percent of whom recommend buying the stock, are projecting that the industry has changed. The remaining manufacturers are less likely to flood the market with chips from new production as they chase market share -- a phenomenon that happened regularly in the past, causing prices to crash. Memory chips are sold like a commodity, with a product from one company being interchangeable with one from a rival.

Micron’s net income in the second quarter, which ended March 1, was $3.31 billion, or $2.67 a share, compared with $894 million, or 77 cents, a year earlier. Revenue increased 58 percent to $7.35 billion. Excluding certain items, per-share profit was $2.82. Analysts had predicted a profit of $2.74 on sales of $7.28 billion.